WILL RUSSIA BECOME A WORLD ECONOMIC LEADER?

Like anyone who loves his country, I am obviously very pleased when I hear that Russia is set to become a world economic leader along with China, India and Brazil. I do not rule out that perhaps in fifty years or even earlier the United States will become dependent on China and not vice versa. Russia, too, has the potential to make rapid progress, as it has all the necessary natural, intellectual and human resources. But one should not ignore a factor like luck. Nobody can be sure that another global disaster is not lurking round the corner.

No one will dispute the fact that Russia, which hit economic rock bottom with the 1998 crash, is gradually recovering from the crisis. The Kasyanov government, which President Vladimir Putin recently dismissed in the run-up to the presidential elections, succeeded in establishing a certain degree of economic stability and calm in the country with fundamental, though restrained, development through reforms without excesses. It is of no small importance that the government did not make any serious mistakes. In general, the results of Russia's development over the past few years are quite encouraging. An annual 7% economic growth rate is not bad, and if we consider that it is just the start, it is quite good.

Today, the modernisation of the Russian economy is often considered as a choice between growth and development: either accelerated GDP growth or profound transformations. It should be pointed out that this concept is not far-fetched. Experience shows that growth can be attained without development, mainly owing to some temporary but exceptionally favourable factors, such as the sharp devaluation of a national currency, an improved international market situation or a notable increase in world prices for a nation's main export items. However, it is obvious that such growth cannot be a reliable basis for solving the most acute socio-economic problems facing a country, unless there are effective and constant stimuli in the country for maintaining this growth. Growth without development is a temporary phenomenon.

One could well understand Vladimir Putin, when he said that the Kasyanov government's economic plans were not ambitious enough, even though ministers had set themselves the goal of achieving an average of 6% GDP growth per year in the second half of the current decade.

However, no attention was focused on the main strategic questions that will face the Russian economy at the end of the current decade. And there are many of them.

The first one is: does Russia need a "second round" of, in essence, free privatisation? A considerable part of what was once called national property has still not been divided. It includes the electricity industry, the gas and oil supply system, the railways, roads, ports, many defence facilities, communications, the post and telegraph services, wood and water resources and a whole lot more. It is quite obvious that, "like in the first round," Russian society will get nothing, or almost nothing, from a new round of privatisation.

I am not against privatisation in general, but its second stage in Russia should be postponed for twenty or thirty years and we should prepare for it like European countries and China did when they were getting ready to implement similar economic measures.

The second question is associated with profits, especially super-profits gained from natural resources. For twelve years, Russian financial and industrial tycoons, when these profits were divided between society and private companies, have enjoyed astonishingly favourable conditions that do not exist anywhere else in the world.

There are many other problems as well. One concerns Russia's accession to the WTO. Russia must undoubtedly join this organisation, but not tomorrow. On the contrary, the country should take ten or fifteen years to make thorough preparations for this step, otherwise it runs the risk of ruining its aircraft building, automotive and food industries, agriculture and the banking sector. One can only be glad that the Putin administration has taken a considered approach to Russia's WTO entry.

Naturally, the future of Russia's economy is being formed today. I am moderately optimistic about the short-term, but I would be even more encouraged if real changes took place in two spheres: the state's approach to small and medium-sized business, and its attitude to the hi-tech sector and science.

The government of reformers in the 1990s all but stifled small and medium business. But it accounts for an immense share of the Russian economy, between 40% and 45%. In the 1990s, science appeared to be almost completely destroyed in the fervour of reforms. But good words have been said of late on this score: "Russia has immense opportunities for making a breakthrough in the hi-tech field..." However, nothing has been done so far to give real support to this sector.

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